The generation of accounting entries from transactions and economic events (referred to hereinafter as “transactions” for brevity) is currently handled by an inefficient process consisting of several steps. First, a person (the accountant) reviews information such as contracts, memoranda, and court decisions that create or describe the transaction or event so that the accountant can understand the consequences of the transaction to the business or company affected by the transaction. Throughout this document “company” and “business” will be used interchangeably to refer to a business enterprise. Second, the accountant must determine how that transaction should be treated under the principles of accounting applicable to the company or business affected by the transaction. In the United States, the accounting principles applicable to businesses are primarily found in U.S. Generally Accepted Accounting Principles (“U.S. GAAP”). Third, the accountant must determine the correct accounting entries to be recorded in the company's books and records to reflect the effect of the transaction on the company's financial condition. Finally, the accountant must record those entries in the company's books and records. Once the entries have been recorded, they are typically reviewed or “audited” by an independent firm of certified public accountants (“CPAs”).
When a transaction affects a company subject to U.S. GAAP, that company is required to record in its financial records both the economic effects of the transaction and the tax (income and other tax) consequences of the transaction on the company. Recording the tax consequences of a transaction in a company's financial records requires the accurate application of the relevant tax law to the transaction. The accountant who generates the accounting entry to record a transaction must therefore determine the tax consequences of the transaction to the company, either by his own efforts or by relying on another individual (typically a CPA or attorney) knowledgeable in the area of tax law applicable to the transaction. Current legal and tax research software assists an attorney or CPA in identifying relevant authorities that govern the tax consequences of various transactions and economic events, but does not provide assistance in applying those authorities to the facts and circumstances of a particular case.